— J. Tomás Delaney L.
We are in an era dominated by global corporations and international capital investors who own and run their operations simultaneously in many parts of the world. Notwithstanding the many advantages that international business may have in the world economy, cross-border trading and dealing between different jurisdictions may give rise to issues of a legal nature and problems of conflict of law. Because of this, it is important for international investors to understand the principal differences between the main systems of law when taking their business overseas.
The Common Law system establishes a set of contractual principles and legal doctrines which the courts must apply a posteriori in order to determine the enforceability of the transaction should one of the parties later contest its validity. On the other hand, the Civil Law system is based on legal formalities and codified statutes, and takes a preventative approach, relying heavily on the Notary as a guarantor of contractual security from the moment the contract is entered into.
The process of “Americanization” —fueled by the United States’ bargaining power as the dominant force in international trade and business— carries, as a consequence, that its Common Law principles towards company contracts and commercial transactions are being imposed internationally. For example, it is not unusual for the United States to condition trade agreements to legislative reforms in countries with which it signs. Thus, countries tend to reduce procedures that may represent a burden to international trade and business practices. As a result, the role of the Notary is sometimes minimized by international investors, who often see it as an unnecessary cost and delay for business.
However, others believe that this liberal approach rather opens the doors for Notaries, since it is a fact that most industrialized countries, who are the exporters of investment capital, maintain a system of Common Law, while many developing countries, which are the chief receivers of this capital —and under whose laws this investment will take form— maintain a system of Civil Law, where Notaries play a central role.
«…NOTWITHSTANDING THE MANY ADVANTAGES THAT INTERNATIONAL BUSINESS MAY HAVE IN THE WORLD ECONOMY, CROSS-BORDER TRADING AND DEALING BETWEEN DIFFERENT JURISDICTIONS MAY GIVE RISE TO ISSUES OF A LEGAL NATURE AND PROBLEMS OF CONFLICT OF LAW…»
Civil Law is extremely formal. Some notarial experts consider the Civil Law system as taking a regulating approach to company contracts due to the fact that the law requires (a) the intervention of the Notary as an independent legal professional to intermediate in private agreements, (b) the mandatory use of exclusive government-issued legal tax paper for private transactions, (c) the burden of costs and delays that Notaries may add to commercial transactions, (d) the exclusivity of public documents to carry evidenciary value in court, and (e) the excessive, and sometimes unnecessary, formalities that these public documents must contain. In short, the law must regulate the manner in which certain commercial transactions are carried out, and, although Notaries may delay and increase the cost of business, they are necessary regulators to secure the validity of commercial agreements.
On the other hand, most capital investors prefer the Common Law approach, and consider this system a facilitator of business based on (a) the more liberal approach of Common Law jurisdictions, (b) the absence of excessive formalities in order to enter into commercial contracts, (c) the freedom of the parties to draft their own contracts privately according to their needs, (d) the lack of excessive documentation in order to transfer property and company assets, (e) the economic advantages and time-saving benefits of not having to resort to a Notary, (f) the direct negotiation between the parties themselves without the need of an intermediary, and (g) the role of the judiciary in determining the validity of a transaction, after a commercial contract has already been agreed and signed.
It is imperative for international business persons to be aware of the legal framework that will govern their companies and operations in every country and to understand the differences between both these systems of law. If companies adapt to these changes, a more realistic vision of how to start and operate their business at the local level will be possible, which will allow for better planning and, ultimately, to greater success.
DelaneySilva | Legal Blog 